Manufacturing in Canada

This post was originally published in consultation with Donald Matthew, who retired from KPMG in Canada in October 2022.

​Several factors made Canada a cost-effective region for manufacturing before the pandemic. And while recent years have introduced a few speedbumps, our reputation holds firm.

This appraisal is owed to more than homegrown pride. KPMG International's 2021 report, Where to manufacture: Global analysis of the cost of doing business, analyzed 23 measures across 17 markets—those measures grouped as primary costs (e.g., labour, utilities, cost of capital) and secondary costs (e.g., quality of labour, ease of doing business, risks and protections)—and ranked Canada number one for overall cost of doing business in manufacturing.

As we all know, the industry is anything but static. So, let's take a deeper dive.

Before and now
Canada's manufacturing industry fared well before the pandemic. It enjoyed a healthy labour supply at a relatively competitive cost, as well as a strong supply chain bolstered by access to domestic resources and inputs, and a central position among major trading partners (e.g., the US, UK, Asia, etc.).

These advantages remain in play. Like many countries, though, Canada is at the mercy of supply chain stressors that make it increasingly more difficult and costly to keep operations moving. Even space itself is scarce, with many of our manufacturing clients paying top dollar for industrial land in urban hotspots like the Greater Toronto Area (GTA) and Greater Vancouver Area (GVA).

Selling product isn't the issue. Demand is strong, and manufacturers are selling every unit that comes off their line. The problem is that most are spending the majority of their time sourcing inputs and optimizing their operations to keep up with demand. As a result, "just in time" production methodologies are swinging back somewhat to "just in case."

Also worth noting is that US taxes and tariffs were a chief focus for many of our manufacturing clients before the pandemic. These are still part of the conversation but now rank lower on the list of concerns due to competing priorities and a change in the US government. Top of mind or not, anxieties over taxes and tariffs will no doubt linger for some time to come.

Canada isn't facing these challenges alone. The manufacturing landscape has changed for everyone else as much as it has for us. So, while several factors have made it more difficult to do business on the global stage, they will do little to impact our ranking.

Don't discount ESG
Canada's affinity for ESG policies and reporting also positions us well. Our private and public corporations are further along the road to building ESG into their reporting and business strategies than their global peers.

We're also taking the lead on environmental stewardship. The University of Alberta, for example, spends significant amounts each year researching more effective ways to extract oil from oil sands, and the results of their work are being implemented across the industry. So, while we're making headway in exploring cleaner tech and reducing carbon emissions, we're also providing a responsible source of fossil fuels as we make the wide-scale transition to more sustainable alternatives.

Opportunities and obstacles
There are reasons to be optimistic about Canada's manufacturing future. For one, we continue to supply large amounts of goods to the trading partners around us despite rising duties and cross-border challenges. Federal and provincial manufacturing incentives are also providing support to the manufacturing sector, and Canada maintains a high quality of life for industry talent.

That's not to say the sector isn't experiencing speedbumps. Inflation and interest rates are hot topics among our clients. Overcoming their associated challenges will depend on how well they are positioned from a balance sheet and customer perspective, and their ability to being able to pass through costs on a timely basis.

Canada's manufacturers are also impacted by geopolitical considerations between international trading partners. This may be the motivation some companies need to explore reshoring or onshoring operations. And certainly, we provide competitive costs to allow for that to happen. However, we need more qualified people.

Despite these obstacles, Canada's manufacturing sector is holding strong. Demand is abundant, sales are good, and our primary and secondary cost advantages are holding firm. All in all, we're a country that's very much open for business, even under extraordinary conditions.